The markets experienced significant volatility last week in response to the monetary policy announcements from the Federal Reserve (The Fed), the Bank of Japan (BoJ), and the Bank of England (BoE). Initially, the US dollar soared, placing pressure on other major currencies and leading to a drop in gold prices.
However, the release of inflation data in the United States based on the Personal Consumption Expenditure (PCE) last Friday changed the market direction and is expected to influence trading on Monday (December 23, 2024).
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GOLD
Gold prices (XAUUSD) surged by over $29 or 290 pips, reaching $2,623.22 per troy ounce. Gold managed to record two consecutive days of gains, distancing itself from a one-month low, as core PCE inflation was reported to grow by 2.8% year-on-year (YoY), lower than the Trading Central forecast of 2.9% YoY but consistent with October’s 2.8% YoY growth.
This data release raised hopes that The Fed could cut interest rates more than twice next year if PCE inflation continues to decline, fostering a positive sentiment for gold that is likely to carry over into today’s European session.
OIL
Oil prices (CLS10) recorded a gain of $0.34, reaching $69.55 per barrel during trading last Friday, after dipping to $68.44 per barrel.
The potential for The Fed to lower interest rates more than twice next year fueled the oil price rally, ending a four-day decline. A more aggressive interest rate cut would likely boost oil demand further.
EURUSD
The EURUSD surged by 658 points (65.8 pips) to 1.04280 last Friday. This pair rose for two consecutive days, pulling away from the lowest levels seen in almost two years.
The stagnant core PCE inflation data was a catalyst for this sharp increase, as it opened up the possibility of The Fed implementing more than two rate cuts next year, narrowing the gap with the European Central Bank (ECB).
This sentiment is expected to influence EURUSD movements during the European trading session.
GBPUSD
GBPUSD climbed 660 points (66 pips) to 1.25646 last Friday. This currency pair rebounded from a seven-month low, spurred by the expectation that The Fed might cut interest rates more than twice next year.
Such an outcome could keep The Fed’s rates lower than those of the Bank of England (BoE), fostering a positive sentiment toward GBPUSD that is likely to persist in today’s European trading.
USDJPY
USDJPY fell by 969 points (96.9 pips) to 156.442 last Friday. This currency pair had previously reached a five-month high but reversed course due to profit-taking activities following the core PCE inflation data release from the United States.
The position of USDJPY remains near the five-month peak, so there is potential for further profit-taking during the European trading session.
Nasdaq
The Nasdaq displayed high volatility before gaining 145 index points, rising to 21,552 last Friday. Massive selling pressure earlier had caused a sharp decline for the Nasdaq during trading on Wednesday after The Fed projected only two rate cuts for the coming year.
However, the release of core PCE inflation data rekindled hopes for more than two cuts, resulting in heightened volatility and providing a positive sentiment for the Nasdaq.
